HomeNewsShould you buy Rheinmetall shares after surging 23% in one day?

Should you buy Rheinmetall shares after surging 23% in one day?

Mircea Vasiu

Rheinmetall shares are on "fire" after the German government's recent twist – it announced that it would invest 2% of its GDP in bolstering its defense capabilities. The news triggered a rally in stocks such as Rheinmetall – should you buy it?

The invasion of Ukraine by Russia has triggered unprecedented reactions from the world community. A security crisis in Europe led to major twists in the geopolitical arena, some of them unthinkable only a few days ago.

Take Germany – the largest European economy. Its government announced that it would spend EUR100 billion on defense following the Russia-Ukraine conflict. Moreover, it pledged to spend 2% of GDP year after year to enhance its defense capabilities.

So here is one German company that stands to benefit from this massive spending – Rheinmetall AG.

Rheinmetall's stock Price surged by more than 71% in the last year

Rheinmetall is a German company based in Dusseldorf. It is an automotive and arms manufacturer and employs over25,000 people.

Its stock price surged on the news by more than 23% in one single session and remains close to the highs. Rheinmetall is listed on the Frankfurt Stock Exchange under the ticker RHM and advanced another 8% today at the time this article was written.

How about Rheinmetall's financial performance and valuation?

Rheinmetall’s revenue is expected to reach EUR6.2 billion in 2022 and to increase by another EUR2 billion by 2025. It stands to make a net profit of EUR398 billion in 2022, estimated to reach EUR510 billion by 2024.

On top of the stock price appreciation, shareholders are paid a hefty dividend. The dividend yield is 2.66% in 2022 and is expected to reach 3.89% by 2024. At the current stock market price, the P/E ratio is 11.86, which is forecast to decline by 2024 and reach 9.23.

Most recently, the company increased the dividend for the fiscal year 2021 to EUR3.30/share – another positive news for shareholders. Furthermore, the last financial results presented by the company showed an operating margin of 10.5% and cash flow well above the market’s expectations.